Fifty years ago, India started the year 1966 with a peace treaty with Pakistan after a 17-day war, and the sad demise of Prime Minister Lal Bahadur Shastri. On January 10, 1966, Shastri signed the Tashkent Declaration with Pakistan's President Field Marshal Ayub Khan. Alexei Kosygin, the prime minister of the former Soviet Union, was the witness. The following day, he passed away. Tashkent in Uzbekistan has symbolic significance for India. This was the foreign city where revolutionary M N Roy had founded the first Communist Party of India in 1920.
A lot happened in India in 1966. After Shastri, Indira Gandhi became the prime minister in troubled times. The conservative faction of the Congress led by Morarji Desai contested her leadership, foreign aid was cut off after the war with Pakistan, and two successive severe droughts drastically reduced foodgrain production requiring the introduction of statutory rationing of rice and wheat. With exports affected and aid discontinued, there was a balance of payments crisis.
In 1964, the government had agreed to a detailed study of the Indian economy by a World Bank team led by Bernard Bell. The final report, available on October 1, 1965, had pointed out that devaluation was necessary to restore external competitiveness. Moreover, there was need for major structural reforms such as substantial decontrol of imports, reductions in industrial licensing, increases in private foreign investment, decontrol of fertiliser production and distribution, and reductions in state-owned industries.
Two important members of the Union Cabinet Asoka Mehta and C Subramaniam agreed with the broad thrust of the recommendations. Mehta, the deputy chairman of the Planning Commission, had deep socialist roots going back to the Congress Socialist Party, and the Praja Socialist Party. Subramaniam was well-known as a great manager. He had become the minister of agriculture because Prime Minister Shastri had told him that agriculture ministry was the "Waterloo" for many politicians and no one else was willing to take it up. He, in the face of opposition from various quarters, took the courageous step of importing 10,000 tons of high-yielding Mexican variety of wheat seeds and launching the green revolution. Subramaniam also had a key role to play in launching the White Revolution by setting up the National Dairy Development Board in 1965 with the legendary V Kurien as Chairman.
Both Mehta and Subramaniam believed that the economic planning bureaucracy and controls established after independence needed to be fundamentally reformed. Prime Minister Shastri reportedly was also convinced about the need for reforms. He even got his finance minister T T Krishnamachari, who was against devaluation, to resign on December 31, 1965, and be replaced by Sachin Chaudhuri. The possibility of a devaluation of the rupee was being speculated even before Shastri's death.
Within two months of taking charge, at end-March, Prime Minister Indira Gandhi visited the United States. By all accounts, her visit and meetings with President Lyndon Johnson went well. The rupee was devalued by 36.5 per cent on June 6, 1966. There was bitter criticism in Parliament and media, and the act was construed as a capitulation to the capitalist West and its handmaidens such as the World Bank. Critics were not confined to the Opposition; it included K Kamaraj, the Congress president. Wholesale price inflation shot up to 13.9 per cent in 1966-67 and 11.6 per cent in 1967-68. The aid package from the Aid India Consortium and the World Bank were disappointing. The food shortage was aggravated by Lyndon Johnson's "ship to mouth" policy.
Aggravated by severe attacks for the devaluation, Indira Gandhi turned left. She gave lukewarm support to the liberalisation effort and denied that the devaluation was under donor pressure. She went on a state visit to Moscow from July 12 to 16, 1966. The communique signed by her and Alexei Kosygin criticised the USA for its bombing of Vietnam without stressing that the Geneva Conference on Vietnam should be reconvened, which India used to do in the past as a part of its balanced approach. The communique also held imperialist and other reactionary forces responsible for deterioration in world affairs.
Congress won the general election for the Fourth Lok Sabha during February, 1967 with a considerably reduced strength. Its strength came down from 361 in a house of 494 in the 1962 election to only 283 in a house of 520. Furthermore, the Congress lost in eight States - Bihar, Haryana, Kerala, Madhya Pradesh, Madras (what became Tamil Nadu), Orissa, Punjab, and West Bengal - where non-Congress governments were formed.
A clearly shaken Congress took a decisive turn towards "pro-people" socialist statist policies.
In May 1967, the Congress Working Committee adopted a radical Ten-Point Programme which included (i) social control of banks, (ii) nationalisation of general insurance, (iii) state trading in import and export, (iv) state trading in food-grains, (v) curb on monopolies, and (vi) abolition of princely privileges. A clear shift to the Left.
There were important changes in the Cabinet and prime minister's office (PMO). C Subramaniam was out when he lost the 1967 Lok Sabha election from Gobichettipalayam in Tamil Nadu. Mehta resigned when the government refused to condemn the August 1968 Soviet invasion of Czechoslovakia. L K Jha, a respected Indian Civil Service officer, who had been the principal secretary in the PMO ever since it was set up, was replaced by P N Haksar, an equally respected lawyer turned Indian Foreign Service officer and an avowed socialist.
There is an Indian joke where a driver sees a sign that says turn left for communism and right for capitalism. She asks Deng Xiaoping what to do. Deng says, "No problem. Just signal left and go right." It can be argued that from 1979, Deng Xiaoping, the paramount leader of China, did precisely that with his country. He signaled Left, but followed the politics of Marx with the economics of Adam Smith. From 1966, what India followed until 1991 was considerably different.
The writer is an economist
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